The authorities will roll out a number of measures in the coming months to regulate crypto assets and boost the legitimise use of the technology, Kuben Naidoo, deputy governor of the South African Reserve Bank (SARB), told a recent PSG Think Big webinar.
Naidoo denied that South Africa was “behind the curve” when it comes to crypto. “We’re pretty much slap bang in the middle of what most central banks and regulators are doing.”
He said most central banks are currently focused on two things: regulating the broad crypto environment and learning from it.
In evaluating cryptocurrencies, Naidoo said it was important to distil the technological advances and the potential improvements to the payments system from “the hype”.
The SARB’s thinking on cryptocurrencies has evolved. It now views them as a type of asset and believes they should be regulated as such.
The role of the SARB was not to “pick winners and losers” in the investment space, but to regulate so that people have “an adequate investor protection warning”.
He said the SARB wants to implement a regulatory framework for crypto that will ensure that anti-money laundering legislation and exchange controls are adhered to, just as they are for investment and trading in other financial assets.
Naidoo said his counterparts in the US have told him that 90% of cryptocurrency transactions in that country (excluding those for investment purposes) involve buying drugs or gambling tokens.
“Another unfortunate reality is that crypto is being used by cyber criminals to demand ransoms, and to fund cross-border kidnappings and other international crimes.”
Two regulatory steps
Therefore, the SARB and Intergovernmental Fintech Working Group are considering taking two immediate steps to reduce the risk of cryptocurrencies being used to evade regulations.
The first step will be to declare crypto a financial product, which will bring it under the auspices of the FSCA. This will enable the Financial Intelligence Centre to list crypto in Schedule 1 of the Financial Intelligence Centre Act.
The second step will involve developing a regulatory framework for exchanges and platforms. They will have to adhere to Know Your Customer protocols and comply with the exchange control laws if they engage in cross-border trade and the tax laws.
However, rather than a “big bang” approach, the public should expect a steady and consistent influx of regulatory measures within the coming months as the regulations start to take shape.
“It will probably still take us around 12 to 18 months to get all of our ducks in a row,” said Naidoo.
He said cryptocurrencies should come with a “health warning”, indicating that clients could lose all their money and owning cryptocurrency was not the same as making a bank deposit.
According to Naidoo, most of the crypto industry has welcomed the government’s approach to regulation, with many players indicating that greater regulation will help to legitimise the use of the technology.
He said it would also go a long way to curb money laundering and help platforms to build systems that are safe and trustworthy.
‘Not a threat’
Naidoo said he did not believe cryptocurrencies will challenge the authority of the SARB, because the technology was still developing, and digital currencies were too volatile to be widely used as a means of payment.
Nigeria announced laws to regulate and standardise digital assets in May. The Central Bank of Nigeria also officially launched its digital currency, the eNaira, in October 2021.
Naidoo said South Africa already has an efficient payments system, so it is not under the same pressure to adopt to blockchain payments.
South Africa was involved with Project Dunbar – an initiative that brings together the Reserve Bank of Australia, the Central Bank of Malaysia, the Monetary Authority of Singapore and the SARB – for a cross-border central bank digital currency.
He predicted that a central bank digital currency would most likely be used for cross-border payments, either for goods and services or remittances, but this would take several years before it became a reality.
